The US Treasury Department has announced that it expects to borrow $816 billion in the January-March period and maintain a cash balance of $750 billion in both quarters. This is considerably lower than expectations for a borrowing of $863 billion. However, there is skepticism surrounding these numbers, as money seems to have been moved from the borrowing number to the cash balance number. Regardless, both of these amounts will need to be financed by selling bonds. The announcement has caused US 10-year yields to decrease, and the tenor of the borrowing will be announced on Wednesday, which is expected to have an impact on the market.
Last week, BMO predicted that the bond bubble has burst and that there will likely be no secular bond bull until there is serious fiscal discipline in Washington. They believe that the probability of a “hard landing” is higher than the consensus of 30% and recommend selling the last rate hike in an inflationary backdrop. Following the announcement, the US dollar has also dropped along with yields.
Overall, the US Treasury’s borrowing and cash balance expectations for the coming quarters have come in lower than anticipated. However, there are doubts regarding the manipulation of these numbers, which will eventually need to be funded through bond sales. The market will closely watch for the announcement of the borrowing’s tenor, which is expected to influence market movement. Additionally, BMO’s prediction that the bond bubble has burst and its recommendation to sell the last rate hike in an inflationary scenario adds to the uncertainty surrounding the bond market.